A lot has been going right for the Philippines. In a report released today, HSBC’s Trinh Nguyen summarized the country’s transformation:

One of the greatest comeback stories in the past year has been the Philippines. The island nation has transformed from the “sick man of Asia” to a symbol of what gradual and steady reform can achieve. The economy surpassed expectations by expanding 6.6% from 3.9%, exceeding its long-term output potential of 5%, a remarkable feat, especially given the backdrop of the global slump in 2012. Remittances shielded the Philippines from sluggish external demand. Timely fiscal and monetary policy also bolstered government and private consumption.

Nguyen expects the economic good times to continue for at least 2013. She upped her forecast for the Philippines GDP growth to 5.9% from 4.9%, with Philippines the beneficiary of global macro improvements, as well as improvements at home. He writes:

For this year, we revise our GDP forecast upward by 1ppt to reflect stronger growth in Japan, improved economic indicators from the US as well as unusually accommodative monetary policy both abroad and at home. Consistently positive political and macro newsflow supports the case for the Philippines. The Aquino administration has gained public trust according to opinion polls for his fiscal consolidation and anti-corruption efforts — refreshing for a nation with a history of colorful leaders.

Still, nothing’s perfect. Nguyen notes:

…a lot of work is still required. While the country is endowed with natural resources, a skilled labour force, favorable demographics, and a dynamic domestic market to counter the global slump, a still lacklustre infrastructure and business environment hinder investment and productivity. Stagnant FDI inflows reflect challenges such as high costs of electricity, poor infrastructure, and restrictive ownership laws.

The Philippines, however, may have the tools it need to meet those challenges, especially if the country earns an investment-grade credit rating during the second half of 2013, which would lower the cost of funding for infrastructure products. And the Philippines will have to continue to show a commitment to reform in order to keep the good times rolling.

The iShares MSCI Philippines ETF has gained 0.7% to $39.61 today, and is up 9.15% so far this year.

About Emerging Markets Daily

Emerging markets have been synonymous with growth, but the outlook for individual nations is constantly changing. Countries from Brazil and Russia to Turkey face challenges including infrastructure bottlenecks, credit issues and political shifts. Barrons.com’s Emerging Markets Daily blog analyzes news, data and research out of emerging markets beyond Asia to help readers navigate the investment landscape.

Barron’s veteran Dimitra DeFotis has been blogging about emerging market investing since traveling to India and Turkey. Based in New York, she previously wrote for Barron’s about U.S. equity investing, including cover stories and roundtables on energy themes. Dimitra was among the first digital journalists at the Chicago Tribune and started her career as a police reporter at the Daily Herald in the Chicago suburbs. Dimitra holds degrees from the University of Illinois and Columbia University, where she was a Knight-Bagehot Fellow in the business and journalism schools. She studies multiple languages and photography.